The US futures regulator had recently indicated that
entities offering clearing and data repositories services for OTC derivatives
would not be able to link the two services together.

The Chicago Mercantile Exchange (CME) Group, which
will offer OTC derivatives clearing, received approval to operate a swap
data repository (SDR) last week. It had filed a law suit against the CFTC regarding the
rule, accusing the watchdog of breaching its mandate.

The suit has now been dropped after the CFTC reversed
its stance, provoking a furious reaction from DTCC, which also has approval to
operate a SDR but will not offer swaps clearing.

“The industry has spent hundreds of millions of
dollars to be fully prepared to meet reporting obligations that will become effective
in one month,” read a DTCC statement. “The Commission's action late yesterday
was an unexplained and an abrupt reversal of course. This action is
inconsistent with the Commission’s previous actions, and will cause market
participants to question the finality of any Commission rule or
interpretation.”

It added that the shift in direction would disrupt the
progress of OTC derivatives reform under the Dodd-Frank Act and urged the CFTC
to reinstate guidance that gives market participants the ability to choose who
they report trades to.

The growing tension among SDR operators highlights the
competitive battle emerging across the swaps world for market activity.

“What’s really
at play here is CME’s reluctance to give up market share and particularly to share
data, which gives it a competitive advantage,” said Mark Steadman, senior
manager at consultancy Sapient Global Markets.

If trades cleared at the CME were reported to a
competing SDR such as DTCC or IntercontinentalExchange, which will offer
clearing in addition to a reporting facility, it may offer rivals a competitive
advantage at the expense of the CME.

However, most market participants believe the broader
implications of the CFTC’s action would be harmful to the overall aims of swaps
regulation.

“This
is a sudden reversal by the CFTC that could delay Dodd-Frank implementation
even more and opens the door for a fragmented data reporting regime,” said
Jamie Lake, principal consultant at Greyspark Partners. “The fact that the
change also appears to be somewhat of a knee-jerk reaction will also create a
further degree of uncertainty among market participants.”